The Changing Face of Retail

In years from now, when we look back on 2018 regarding MI retailing, despite a shakier economy than in the most recent past, most will likely say the industry had a positive year. But this certainly does not mean MI faces no challenges. In fact, it’s far from it. Internet competition is tough. Competing on pricing alone is well in the past. Then, there are the new questions raised about the U.S. Supreme Court’s online sales tax ruling in South Dakota v. Wayfair Inc., which in essence says states can compel retailers to collect sales taxes, even if they don’t have a physical presence in the state.

“The Internet’s prevalence and power have changed the dynamics of the national economy,” Justice Anthony Kennedy wrote in the 5-4 majority opinion. “The expansion of e-commerce has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes.”

But considering several retailers have both a brick-and-mortar presence and an online presence, will this ruling have an effect on MI or be negligible? We ask that topic fi rst in our 13th annual Independent Retailer Roundtable, which took place at the restaurant Barlines, across from the Nashville’s Music City Center, during Summer NAMM. Joining us this year are Allen McBroom of Starkville, Miss.-based Backstage Music; Gordy Wilcher of Owensboro Music Center in Owensboro, Ky.; and a new panelist, Chuck Marks of Harrisonburg, Va.-based Hometown Music. All are members of the Independent Music Store Owners (IMSO) retail group.

The Music & Sound Retailer: How will the Supreme Court’s internet sales ruling affect you, if at all?

McBroom: I feel like it will reduce the incentive for some of our local customers to find and buy instruments online. We’re in Mississippi, where there is a 7-percent sales tax. If I’m selling a $500 item, I have a $35 disadvantage selling at MAP. They can go to any online place out of state, buy it and save $35. I can’t blame them for doing it if money is tight. I might do the same if I were in their shoes. But now, the customer will have to pay the same $35 online. But in the store, I can touch [the product], experience it and get local customer service. So, I think it will remove an impediment people had to buying locally. And I’m all for it.

Marks: I think it’s potentially a good thing. As I understand it, the states have to seek to enforce the law, which I don’t think Virginia is doing now, even if it could be. So, I see it potentially as a good thing if it actually flows through to the point where the online people are supposed to start tracking it. I don’t do online sales, so it wouldn’t affect me in that area.

Wilcher: The way we are looking at it in Kentucky is, we offer incentives to our customers anyway. For example, if you buy a guitar, you can get 30 days or two weeks to bring it back. You pay for the strings, and we do a complete setup. So, in addition to those incentives, I’m hoping the internet sales tax [ruling] will make a little bit of a difference in sales. We are going to come up with a new program with even more incentives to buy local. I think it will help. I hope it does.

The Retailer: Let’s move on to a difficult question: What is your biggest challenge today as an MI retailer?

“The days of buy it for $1 and sell it for $2 are long gone. There seems to be a mindset among most providers that they can establish MAP and establish net. However, once they reduce that margin, it’s OK because we, the retailer, will make it up somewhere else. The problem is, every single supplier is doing the same thing.” — Allen McBroom

McBroom: Shrinking margins. The days of buy it for $1 and sell it for $2 are long gone. There seems to be a mindset among most providers that they can establish MAP and establish net. However, once they reduce that number, and once they reduce the margin, it’s OK because we, the retailer, will make it up somewhere else. The problem is, every single supplier is doing the same thing. It used to be that serial-numbered items were fi rst to shrink margins. [Manufacturers] would say, “That’s OK, you can make it up on accessories.” But accessories are establishing MAP, and they are reducing margins. You can only squeeze the rock so much. We’ve been squeezed to the point that, from reading IMSO forums, stores are making money on lessons, rentals and repairs, the revenue streams you can’t do on the internet. We pay our lighting bill on the products we buy and sell. But the profits that let us pay the salaries are coming from things other than buying and selling manufacturers’ products.

The Retailer: With that said, are you no longer an MI store, but instead a lessons and rentals store?

McBroom: At least half of our revenues come from audio/video contracting. But we’re still viewed as a guitar store. If you stop anyone in our hometown and ask if they know about Backstage Music, they will say, “Sure, that’s the guitar store.” We sell more ukuleles than we do guitars. We sell way more guitar strings than we do guitars. We sell almost as many keyboards as we do guitars. Not quite… We are viewed as a guitar store, but in reality, we are an audio/video contracting business that also has a retail component that primarily sells guitar strings, and somewhere down further in the mix, sells guitars. Reality is different than perception.

The Retailer: Any other comments on biggest challenges as an MI retailer?

Marks: I think [Allen’s] point is well said. Reduced margins make it harder to run the business. I could really use one more employee, and I’d like to pay all employees better, but there’s only so much money to go around when you are working with reduced margins. The other obvious thing is competing with the internet. It’s not just the sales tax disparity. It’s overcoming the obstacle of people who order on the internet without seeing if there is a local alternative.

The Retailer: Who is the biggest internet competitor for you? Other MI retailers? Amazon?

Wilcher: It’s interesting you bring up Amazon. I half-jokingly tell people that you’re expected to have every widget that Amazon has. We see slower foot traffic, but people will call us and ask if we have a double-prong, triple-something connector? I say, “No, we don’t carry that.” “Well, Amazon has it.” My answer is, “Well, they probably do.” I have more concerns with that than actual internet music stores. Like Allen mentioned, we have to reinvest in sound and video contracting. That’s going to have to become a bigger part of our business. Our lesson program is strong. We have a lot of events, like recitals. We have a concert series on Thursdays. We are trying to do everything we can to fill the store. We feel that once we get them in there, our service will give us a good shot at making the sale.

But I wanted to get back to big problems we face. For me, it’s getting core product from some of our biggest suppliers. I’ve been very, very concerned. I won’t name any names, but I’m talking about core products we use constantly. You call them, and they say, “Well, we’re not going to have that product for six weeks.” Our repair guys will say they need a replacement for something. We call and the supplier says, “Well, we don’t have any of those.” So, you have to go to an online parts distributor and buy them there. It’s funny suppliers don’t have the products for us, but a lot of places seem to have them. That’s a big concern.

McBroom: There’s an issue that crops up from time to time where a local customer will call us and say, “Hey, we’d like to buy XYZ. Can you get us one?”

“Sure, we are a dealer, we can get you that.”

“How much is it?”

We look it up and give them MAP price. Or, if there’s no MAP, we give a reasonable price. They say, “Thanks, but I can get it cheaper on Amazon.” We are taken aback by that. Either Amazon itself or Amazon merchants are able to sell a product for less than what we can buy it for. We run into this again and again. It’s not just highly specialized items.

A growing issue is the counterfeit market. There are some manufacturers now that are actively battling counterfeit markets and products, but at the expense of retailers. They don’t know what else to do. It’s not that they wish to do this. For example, let’s say guitar strings cost us $4 a set. That same brand, same SKU, you can go on Amazon and buy it for $3.60 with free shipping and 10-day delivery from China. I know that [product on Amazon] is counterfeit. You know it’s counterfeit. But these manufacturers have to deal with rampant counterfeiting. Generally speaking, strings look alike. They stick it in the right colored package with the right text. It costs them $1 to make and they sell it for $3 with free shipping, because China subsidizes its shipping from China to the U.S. If we were to ship to China, we have to pay full price. So, I think counterfeiting is going to become one of the leading problems we have in our industry.

Wilcher: I haven’t found the counterfeiting problem as much yet, but I have found that products that are being sold directly by our manufacturers on Amazon that are less expensive than I can buy them. I had an instance with one of the reps of a particular company. They were in the store, and I decided I wanted to look up their product on Amazon. It was cheaper. I said, “How can this be?” “I don’t know,” they said. “It could be counterfeit.”

The Retailer: On the other side of the coin, what is working well for you now, and are you optimistic as an MI retailer?

Wilcher: I’m a little pessimistic after 45 years, seeing how things have changed, to see the habits of our customers, particularly younger customers. They don’t seem to value the service and perks of coming in, seeing it, hearing it and feeling it. They don’t care until they have a problem with it. We have students that bought guitars elsewhere that come in for lessons, and we tell them we sell guitars at the store. They say, “I didn’t know you sell guitars.” We have 150 guitars hanging on the walls, and they come in every week! Honestly, I don’t see any loyalty with younger customers. We do have older customers who are loyal and appreciate us still being there. But that really worries me with the younger set. It’s apparently not important to them.

“Reduced margins make it harder to run the business. I could really use one more employee, and I’d like to pay all employees better, but there’s only so much money to go around when you are working with reduced margins.” — Chuck Marks

Marks: I think there’s room for optimism. I have seen a certain group of customers who come in and say, “I’m so glad you’re still here.” And, “I don’t care what your price is. I’m buying it from you.” The downside is that’s a small percentage of the population. I think there is a movement toward shopping local and supporting local businesses, at least in our town. I sense that across the board. The question is, is that small sliver of people who think that way enough to support a store and continue to support a store and possibly create a movement to get more people to get into the concept of it? But as Gordy said, a lot of people don’t understand the concept of supporting local businesses and don’t have loyalty. Even a good, musically well-educated music customer coming into a store and saying, “Oh, I didn’t know you carried that” is amazing because he comes in the store every month.

Wilcher: One of the things I’ve noticed, and it really bothers me, is sound contracting with houses of worship. We have local churches that will buy everything on the internet. They will call me and say, “I can get it on the internet.” I responded to one in a peaceful manner and said, “Of all of the people sitting in your pews in your congregation, where are they from?” Of course, they are from the same town. Of all the people in a community, if a church can’t support a locally owned business, what’s happening?

I feel like I have to reinvent myself every day. Every day, I ask myself, What am I going to do today?

McBroom: I would say we are cautiously optimistic. What I’m seeing is a fundamental change in the generally accepted definition of retail. In the 1910s, stores that bought into the idea of having a telephone were considered uppity and enjoying something frivolous. Today, it is a foregone conclusion that people will use the internet and are tied to it.

I was sitting outside with my beautiful, wonderful bride the other night. We were having a quiet beverage. Right in the middle of enjoying the wonderful evening, it dawned on me: We were both looking at our phones. We were browsing Facebook, Instagram, whatever. The internet and means of accessing it have become part of the normal flow of life for us as a society and culture.

So, we have dived into ecommerce. We have an eBay site. We have a Reverb site. We have a website. And I’ll admit it: We sell highly selective items on Amazon. I don’t want to give up any of these markets. The “new” retail is realizing that our market is not standing in front of us at a counter with cash. Our new retail is that, plus people standing, sitting or reclining with a phone in their pajamas at 10 p.m. on Sunday night, buying from whomever has the lowest price on Amazon, whomever has the best feedback on eBay, whomever has the best photos on Reverb and occasionally, whomever had the item on a website.

We recently sold an accordion. It was a consignment from one of our customers. It was exquisite and high end. It sold for more than $3,000. Could our consignment customer have sold that item themselves? Yes. But he doesn’t have the resources we have. We had a person come into our store, describe all of the features of the accordion for half an hour, and we videoed it. We edited it down to about eight minutes and posted it on Reverb. eBay does not allow you to put a video up because it’s linked to YouTube. eBay calls it active content. Reverb calls it a selling tool. Big difference. We are not an accordion store. We know nothing about accordions. We’re stupid about accordions. But I did enough research to find out this was a special accordion.

So, today, the nature of retail has changed. There are significant differences between these three third-party platforms. Amazon is all about price. If you are an Amazon retailer, you may get an email that says you may not have the lowest price on Amazon. They know nothing about what you’re selling. They treat shaving cream, motorcycle tires and guitars the same. They take a 15-percent cut of your sale. eBay is about quality of your listing and feedback. Reverb is about the quality of the listing and the photos. Your own website is a reflection of who you are as a company. That’s the new face of retail. As retailers, we can accept this, cope with it, adapt to it or vanish.

The Retailer: What products are selling well for you this year?

Wilcher: Ukuleles. We do have a monthly ukulele group, which has helped. The last two or three seasons, we sold more ukuleles than guitars. And we are well known as a guitar store. But no one thing has carried our sales. The used market has been good. I had a bass guitar that had been hanging on my wall for eight years. Of all places, I put it on Facebook Marketplace. A guy from Phoenix, Ariz., within an hour, got ahold of me and told me he had been looking for the bass for five years. I put it right in the box and sold it. Allen is right. You just don’t know where your market is anymore. Facebook has become a huge marketing and sales tool for us.

McBroom: If it weren’t for CITES regulations, we’d be a worldwide market. But because of that, we’re pretty much restricted to selling within the country if it has rosewood or any other restricted wood in it.

Marks: Ukuleles are definitely big. They are part of a movement of people wanting to play music like older people/retired people. People who would find it harder to pick up a guitar. They are easier to play. There are groups in our area we have connected to, and we are fortunate that they have sent some people to us. James Madison University has a group called JMUke. They bought a bunch of ukes from me, and they have open classes where they invite people to come and get free uke lessons as a way to spread music making. Ukes are a happening thing.

Acoustic guitars are also solid, and electrics aren’t that bad. I don’t agree with the “death of the electric guitar.”

McBroom: To mention brands that are good for us: Amahi Ukuleles. Gordy also has two thumbs up on Amahi (in the background). From our experience, Amahi Ukuleles is the best bang for the buck in the ukulele world. It’s a relatively small, family-owned company. They make orchestral strings and ukuleles. That’s it. When you call them, you will probably talk to a family member.

The other company is Fishman. Fishman has long been known in our industry for its acoustic pickups. A few years back, it branched out into acoustic amplifiers in three models: The Mini, Artist and Performer. The Mini and Artist, to us, are “killer.” We have trouble keeping them in stock. The Mini is the go-to amplifier for solo performers. Fishman deserves huge kudos for knowing who it is and doing what it does best. I cannot say enough good things about Fishman and Amahi. I’m not saying other companies aren’t good, but these two are right at the top of the pyramid.

Wilcher: The Music People is great. They have been very supportive since we founded the IMSO. We have a great relationship. They listen to us and strive to help the independent retailer.

The Retailer: Speaking of IMSO, what are some of the topics discussed on your forums?

“The last two or three seasons, we sold more ukuleles than guitars. And we are well known as a guitar store. But no one thing has carried our sales.” — Gordy Wilcher

Wilcher: Well, the customers and strange requests we get in our stores is definitely one thing. I think Allen can speak even more to it, though.

McBroom: Well, let me redirect it a bit. Chuck, when you joined IMSO and were approved, you got access to the forums. What did you find useful?

Marks: I think there’s a lot of good information. I’ve been an IMSO member for a number of years now, but I just haven’t been very active before. I carry SIT Strings because I was looking for a different string brand. I went on the forum and saw multiple dealers saying how great SIT is to work with and what a great brand it is. There are several brands I’ve chosen to carry based upon IMSO forum recommendations.

There was also a discussion about credit card processing and what company people use for that. It was good getting different perspectives and getting an idea what percentages people were paying. It was good to know whether I was in line or not with other retailers. Techniques and concepts of how to approach things in the store have been really useful. There’s a wealth of information.

McBroom: Some of the topics we cover are combatting online lessons, how to display products like gig bags and more. We have a thread called “Everything Else,” where we cover anything odd or weird that happened that day in the store. It’s so funny. We could have a thread where a store owner in Arizona says, “I had a guy come in today and do this.” Somebody in Minnesota will say, “I think that guy has been in my store.” And it will be echoed by someone in New Jersey, where they say, “Oh yeah, he’s a regular. I just don’t know what to do about it.”

We also have people who talk about tax issues, workman compensation issues, safety issues and what brand is selling best. What’s unusual about the IMSO is it’s only store owners. It’s not managers, employees or anyone else. It’s only owners that are fully involved in their stores. If you ask a question, someone is going to open up and tell you their heartfelt truth of how they did it and what worked.

Wilcher: One thing I always hear is, “I’m glad I found you guys. I felt so alone. All of a sudden, I found a group of guys that are going through the same thing. We are a family.”

Marks: You can feel like you’re alone [as an MI retailer]. Some people may not want to do it anymore. But you go on the forums, and you see how other people are handling problems. I say, “OK, I can go into work tomorrow…” Even though there is reason for pessimism in the industry, it’s encouraging that people get up every morning and keep strategizing ways to make it work.

McBroom: There’s an article series I’m writing in the Music & Sound Retailer about new things MI retailers should know. We’ve canvassed MI retailers in IMSO and asked them if you were advising a new store owner, what would you tell them? The answers that come out are stunning. I look at the answers and say that [experienced] owners need to know this information, too. We need to be reminded of some of these things. People like Gordy and Jim DeStafney [of Blues Angel Music] have been doing this for decades. They have insights you just can’t learn otherwise without spending a lot of money. So, I strongly recommend joining IMSO to take 20 or 30 years out of your learning curve.

The Retailer: Let’s end with Summer NAMM. Why did you come to Nashville, and what were you looking to get out of the show?

Wilcher: I always have a goal. It’s always about finding 10 new items I can add to the store. But Summer NAMM this year was more about strengthening partnerships with some of our suppliers. Most iconic brands got that way by retailers who 40 or 50 years ago decided to sell their products. I sometimes feel like retailers can be forgotten. Maybe it’s selfish, but my goal is to remind them. I say, “What about us? Don’t forget about us.” I think the industry has lost a lot of its heart and soul. If you look at a lot of the iconic brands, they’ve become corporate America with hardly any music people involved. It’s all about the bottom line. But that’s just me venting [laughs].

Marks: I don’t come for specific things. I come to refresh and revitalize. I like to talk to some of the people I work with and meet face-to-face with them. There’s not as extensive an array of products as the winter show, but I still get to see what’s out. The chance to get out of my store and refresh my perspective is what I hope for most. You always look for that new, magic product, but I don’t usually take on something brand new just because I stumbled upon the booth at the show.

McBroom: I like going to a lot of NAMM Idea Center presentations. It’s good to learn how other people are handling social media, how they handle lessons, how they handle rentals and how they approach other things. We hear these presentations from brilliant people. God bless NAMM for providing this. NAMM is like the hospital for music retailers. Music retailers go [to a NAMM Show] to get new treatments and what they need to carry on into the next year and next decade. IMSO is the support group. We talk to each other and tell each other, “It’s OK.” Like, “We know you had a terrible summer, but it’s OK, because August is coming.”

We love NAMM. We cannot do what NAMM does. And we’re tickled pink that IMSO is there to help us understand how we fit into the big picture.